Nov 5, 2009

India enjoys the cheapest call rates on mobile phone available in the world. It has helped India enter the mobile revolution skipping the internet revolution (in one sense). This huge penetration of mobile phones in Indian market prompted a lot of companies to mushroom providing services around mobile phones. One such segment were services around bulk sms'es. But soon this segment is going to be hit badly.

SMS are sent either from a person's mobile phone (P2P) or through an Application (A2P). While SMS sent by a person costs 1 Rupee, SMS sent by an application costs way less. Once you get access to these SMS gateways (which is not trivial), you can send out the sms'es at virtually 0 paise. Huge upfront charges though introduces a barrier to smaller players. But that opens up gates for resellers, who buy SMS credits in bulk from these providers and sell it to more smaller players. Thus evolved an ecosystem of advertisers reaching out to people at low cost, political parties running their campaign on sms, A2P providers, resellers and even smart applications around sms'es.

This was possible because the cost of transferring a SMS from an application to end user was close to 0 paise. There was no interconnect charges between telecos to handle sms originating from one teleco and terminating on another one. Recently though Airtel signed a deal with Tata Teleservices and other telecos wherin telecos will pay 15 paise per sms terminating on Airtel's network. Today Tata Teleservices is market leader in providing bulk smses and Airtel is well leader in number of mobile connections (more that 30%). This virtually means that the 0 paise/sms which was possible till now has suddenly become 15p.

Yes, this move by Airtel (and soon to be followed by other telecos) is going to affect the A2P service market quite adversely. Interconnect charges are required so that the terminating teleco also make some money in handling the sms. This is the same reason why interconnect charges were introduced in voice calls when GSM service providers stopped handling calls from CDMA networks. Moreover it provides a cost barrier for players to enter this field. 'Free SMS to India' will no longer be possible now.

But Ideally TRAI should have regularized this charge after carefully studying the volumes in this market and evaluating the effect of such a charge on end consumer. This move by Airtel is clearly aimed at increasing its revenue in short term and getting back its lost share of A2P market in the longer term. Only Airtel will not be able to provide sms delivery to Airtel mobile phone at close to 0 paise. Airtel being a leader in number of connections will soon attract A2P players from other telecos.

Consumers also will be affected by this move albeit indirectly. Banks, airlines and other institutions are already crying foul on this move. They were able to send real time free alerts to its vast user base because the charges were quite low. But now with the interconnect charges it is going to severely increase their expenses. Other companies such as mobee.in and m3m.in which provide email delivery to your mobile phone over sms are also going to be hit badly.

I hope TRAI realizes the gravity of this situation and intervenes immediately before it affects this whole industry in general.